The Reserve Bank of New Zealand has surprised with yet another rate cut, its 4th for the year at its last meeting for 2015.
The bank cut its official cash rate by 0.25% to 2.50%. Many economists had thought the bank would not change rates after three cuts this year and return to the issue early in 2016.
So it was the 4th rate cut this year after 0.25% reductions in June, July and September.
And giving Kiwis a Christmas present, the bank’s boss, Governor Graeme Wheeler made it clear further cuts would be looked at in the new year.
"We expect to achieve this at current interest rate settings, although the Bank will reduce rates if circumstances warrant. We will continue to watch closely the emerging flow of economic data,” Mr Wheeler said in the statement.
The central bank said this morning it had cut rates because “a number of uncertainties and risks” to the current outlook for the NZ economy.
"In the primary sector, there are risks that dairy prices remain weak for longer, and the current El Niño results in drought conditions and weaker output. Risks to the domestic outlook include the prospect of net immigration staying high for longer and of household expenditure picking up on the back of strong house prices,” Governor, Graeme Wheeler said in a statement issued by the bank this morning.
"Monetary policy needs to be accommodative to help ensure that future average inflation settles near the middle of the target range.
"Growth in the New Zealand economy has softened over 2015, due mainly to lower terms of trade. Combined with increases in the labour supply from strong net immigration, the slowdown has seen an increase in spare capacity and unemployment.
"A recovery in export prices, the recent lift in confidence, and increasing domestic demand from the rising population are expected to see growth strengthen over the coming year.
"CPI inflation is below the 1 to 3 percent target range, mainly due to the earlier strength in the New Zealand dollar and the 65 percent fall in world oil prices since mid-2014.
"The inflation rate is expected to move inside the target range from early 2016, as earlier petrol price declines will drop out of the annual calculation, and the lower New Zealand dollar will be reflected in higher tradables prices.
The latest rate cut came despite continuing high property prices in the country’s biggest city, Auckland.
"House price inflation in Auckland remains high, posing a financial stability risk. Residential building is accelerating, and recent tax and LVR measures are expected to reduce housing pressures. There are some early signs that Auckland house price inflation may be moderating,” Mr Wheeler said this morning.
